RBA takes a wait and see approach

THE central bank has left the cash rate on hold at three per cent at its first board meeting for 2013.

By Jason Cadden and Evan Schwarten

AAPFebruary 5, 20134:48pm

BORROWERS got a double dose of bad news after the first Reserve Bank of Australia board meeting of the year - no cash rate cut and it doesn't look there's one coming soon.

The decision by the RBA to keep the cash rate on hold at three per cent was widely expected, especially after the release of better economic data from China and the US in recent weeks.

In a statement accompanying the decision, RBA governor Glenn Stevens said the full impact of the four rate cuts in 2012, which took the cash rate from 4.25 per cent to three per cent, would take more time to become apparent.

Fears about the global economy had eased now that the US had avoided the fiscal cliff, Chinese growth had improved and financial pressures in Europe were abating.

"In Australia, most indicators available for this meeting suggest that growth was close to trend in 2012, led by very large increases in capital spending in the resources sector, while some other sectors experienced weaker conditions," Mr Stevens said.

He added that, with annual inflation currently within its target band of two to three per cent, the RBA had room to cut the cash rate further if needed.

"The inflation outlook, as assessed at present, would afford scope to ease policy further, should that be necessary to support demand," he said.

RBC capital markets fixed interest strategist Michael Turner said while the RBA was a little more upbeat about the economic outlook, he doesn't expect another rate cut until the second quarter of 2013.

"Our view since the December cut is that they will need to see some domestic data on the low side of expectations for a few weeks, if not, for a couple of months for them to put another rate cut on the table," Mr Turner said.

"They may be a tiny bit more confident with certain parts of the domestic economy, in particular the housing market".